The reckoning begins. Over the next month, according to Goldman Sachs,
companies representing about 70pc of the value of Europe's stock markets
will announce their 2008 results.

A few businesses like British Airways have already warned that they will undershoot the results runway. The daily diet of job loss announcements tells its own grim story while the surveys are still queuing up to claim their share of "worst since" headlines.

But if you want a snapshot of what's really happening in the economy, there's nothing to compare with the earnings season. Day after day until the end of February those with the stomach for it will be able to feast on the harsh arithmetical reality of what the credit crunch and unfolding recession mean at the commercial front line.

By the end of next week, we will have heard from BP, Unilever and Volvo. LVMH, GlaxoSmithKline, Roche and Ryanair will have brought us up to date. The numbers will be out for Vodafone, British Land and Deutsche Bank.

Each will tell a slightly different tale of woe for 2008. Like families, happy companies are all alike but every unhappy company is unhappy in its own way.

There will be common themes, however. All will describe a downward spiral from cautious optimism at the beginning of 2008 to growing anxiety in the summer, pessimism as the leaves fell and then outright despair as activity simply collapsed in the fourth quarter.

Those exposed to the emerging markets of China, India and central and eastern Europe will describe the now forlorn hope that the developing world would continue to drive growth even as the developed world retrenched.

Looking ahead, a picture will emerge of businesses watching every penny, reining back on capital expenditure, cutting jobs and, as a last resort, reassessing the dividend. Those that can do so will fall over themselves to reassure investors about the robustness of their balance sheets, lack of leverage and continuing access to credit.

The lucky few that stand to gain from sterling's ragged retreat will focus on their heightened competitiveness.

What will matter more than anything else for investors is the extent to which City scribblers have correctly predicted the inevitable earnings downturn. Markets can rally even as the bad news continues to flow but only if expectations have already hit the floor.

This week, the S&P 500 edged higher in the face of tumbling consumer confidence and a record year-on-year fall in US house prices because American Express and Texas Instruments announced better-than-feared numbers. Europe rallied after Siemens confirmed it would meet forecasts even as its order book stumbled.

These will be the exceptions, I suspect. Perhaps City analysts, like the rest of humankind, cannot bear too much reality. Whatever the reason, they have a reputation for being behind the curve in both directions and, according to Citigroup, they will struggle to play catch up again over the next few weeks.

Citi's strategists, looking down from their economic Olympus, expect average global earnings to halve between the profits peak in 2007 and next year's trough. Strip out the catastrophic implosion of earnings in the financial sector and the downturn for the rest of the world is only just getting into its stride. They think earnings overall have another 40pc still to fall.

How does that compare with the analysts on the ground who make forecasts for individual companies? According to IBES, which aggregates all these individual predictions, analysts expect earnings to fall by just another 2pc in 2009 and then to recover by 16pc in 2010. That's a big difference.

A lot hangs on who's right here because it will be difficult for the market to stage a meaningful recovery as long as the majority of results announcements are greeted by analysts wielding red pens.

One reason to expect a lot of new earnings downgrades in the next few weeks is the unusual variation between analysts' forecasts. Many just don't know what's going to happen, a reflection of the fact that some companies have stopped providing guidance because they themselves are not much the wiser.

That's the bad news. The good news is that the market, in its marvellous wisdom, knows better than to pay too much attention to the forecasts in the City's spreadsheets. It certainly doesn't allow itself to be overly swayed by what company managements have to say about the outlook. The market has already placed its bet and it's backing the Olympian view that profits are poised for a pounding.

According to Citi, shares around the world are, on average, valued at about 10 times last year's profits. If we assume that earnings do in fact have another 40pc to fall then that multiple will rise to 17 times earnings, which funnily enough is the 40-year average price/earnings ratio for the global equity market. In simple terms, it's in the price.

The real test of the market's resilience at this level will be the way in which investors respond to a barrage of unvarnished gloom. If it can avoid a February fold, then maybe we can dare to hope the worst is behind us.